The Madison Weekly Market Wrap

September 1, 2019
Volume 6, Issue 35


Market Monitor

Above the Market - Information is cheap; meaning is expensive


Course Reversal

Worldwide, politicians left and right are demanding that their central banks aggressively cut rates to juice their economies, irrespective of whether doing so is prudent. And central bankers obviously seethe with a desire, most recently expressed (last week) by former New York Fed President William Dudley, to force politicians to do their jobs, make difficult decisions, and make necessary corrections so that central banks might keep some ammunition for a real crisis, retain their independence, and simply do their jobs. As Mr. Dudley said, “Officials could state explicitly that the central bank won’t bail out an administration that keeps making bad choices….”

Thus far, largely because the central banks – perceiving themselves as the only grown-ups in the room – are unwilling to force the politicians (and, most importantly, their constituents) to pay for their mistakes, the politicians are clearly winning (as they should – central bank officials aren’t elected and shouldn’t go about trying to decide elections). That the politicians are winning suggests that the economy will be the worse for it and that the Fed (or other central banks) won’t be able to stimulate the economy when doing so really becomes necessary. But the economy will probably remain fine, at least for a while. As ever, politicians – for whom lunch is a long-range plan – favor right now over what is in the longer-term best interest of their countries. Moral hazard is right in their wheelhouse.

In the capital markets last week, domestic stocks enjoyed their best week in nearly three months, as traders appeared to grow more confident in the prospects for a U.S.-China trade deal. Within the S&P 500, industrials outperformed while health care, consumer staples, real estate, and utilities shares lagged.

Futures markets were sharply lower before markets opened Monday, as traders reacted to President Trump’s announcement the previous Friday evening of additional tariffs on Chinese imports. However, Mr. Trump appeared to reverse course on Monday, stating that prospects for a trade deal were the best they had been in some time and asserting that the Chinese “want to make a deal very badly.” Markets pulled back as hopes for a deal faded again Tuesday, however. The editor of a state-owned Chinese newspaper tweeted that he had no knowledge of any recent talks and that China “didn’t change its position” and “won’t cave to U.S. pressure.”

On Thursday, trade prospects took another turn for the better. A spokesman for China’s Ministry of Commerce told reporters that China had no plans to respond to the White House’s latest tariff escalation, although he also remarked that “China has ample means for retaliation.”

Reflecting the week’s mixed economic signals, the yield on the benchmark 10-year U.S. Treasury note ended the week little changed at 1.50 percent.

Most major European stock markets rose last week, buoyed by the seeming improvements in U.S.-China trade talks and the agreement of Italian political parties to form a new government. The pan-European STOXX Europe 600 rose more than 2 percent, while the exporter-heavy German DAX advanced 2.5 percent, and Italy’s FTSE MIB gained almost 4 percent.

In Asia, traders of Chinese stocks appeared less encouraged by the latest trade developments and braced for the next wave of U.S. tariffs and both major Chinese indexes traded off slightly. All the Japanese indexes advanced.

I trust you will all enjoy your Labor Day holiday tomorrow.
From the headlines…

Across the country, more than 1 million more jobs are available than there are people to fill them.

President Trump claims he has the “absolute right” to order U.S. companies out of China. The trade battle is shaping up to be a definitive issue in the 2020 presidential campaign. The world’s central bankers are increasingly worried Mr. Trump’s tactics to reorder global trade are destabilizing economies in ways they can’t easily fix. A growing number of U.S. companies say they’re hurting as the U.S.-China trade war intensifies.

U.S. consumer confidence declined in August by less than forecast as Americans’ assessment of current conditions climbed to the highest level in almost 19 years, helped by a job market that remains robust.

Second-quarter GDP was up a seasonally adjusted, annualized 2 percent, the Commerce Department said — a decent pace but down from the first quarter’s 3.1 percent and 2018’s overall 2.9 percent, as well as from the previous second-quarter estimate of 2.1 percent. Weakness in inventory investment and trade were bigger drags than previously thought. And a broad measure of corporate earnings that had dropped for two consecutive quarters rebounded.

Last week, the dividend yield of the S&P 500 went higher than the yield one can obtain from a 30-year U.S. Treasury bond. That has only happened once before in the post-WWII era – at the tail end of the 2008-09 Great Financial Crisis.

One of the broadest gauges of the American bond market, the Barclays Aggregate, is sitting on gains of 9.10 percent YTD. If it were to finish the year at that level, it would be the index’s biggest increase since 2002. Longer-term bonds have done even better. If you had simply bought the 10-year U.S. Treasury note at the end of 2018, you’d be up almost 13 percent YTD. TLT, an ETF of U.S. Treasury paper 20 years and greater in term, is up 23 percent YTD.

The U.S. Treasury yield curve completely inverted Tuesday, with 1, 2, and 3-month U.S. Treasury bills all paying higher interest rates than 30-year U.S. Treasury bonds. The yield on the 3-month bill moved as much as 52 basis points above the 10-year note (the highest since 2007) with the 10-year yield ending the trading day well below the 2-year — fully inverting another closely watched yield curve. The 3-month/10-year and 2-year/10-year yield curve inversions are closely watched precedents of recession. Economists at the Federal Reserve recently called the 3-month/10-year inversion “the best summary measure” for an economic downturn.

Greek government 10-year bonds yield 1.83 percent, yields on Italian 10-year government bonds have dropped below 1 percent, an unprecedented level, and 10-year U.S. Treasury notes yield 1.49 percent. Those levels seem out of whack in that Greece is rated B1/B+ (a junk rating) and Italy is rated Baa3/BBB (a very low investment grade rating), while the United States (Aaa/AA+) is generally considered to be the best credit on the planet. What yield might 100-year U.S. debt trade at?

Insider selling is increasing.

FAANG shares, once darlings of the tech sector, have been losing their luster.

Johnson & Johnson was ordered to pay over $572 million for its role in Oklahoma opioid crisis.

For those within 10 years of retirement, this eight-step review can help.

What are your investment beliefs and why are they important?


Chart of the Week

Chart of the Week 2

Chart of the Week 3

Underwriting Success Stories

Mia Dempsey, New Business Manager
(Asset Marketing Systems)

Asking someone about their personal medical or lifestyle information can be awkward.  On the other hand, having that conversation early on is better than losing the sale.  The Asset team is here to help with some ideas to make the conversation beneficial and effective in positioning the sale. There’s no need to go back to “re-sell” the insurance due to underwriting surprises.

Idea #1: Utilize the underwriting resources on the Asset Portal.

 Asset provides you access to the X-ray system. This system gives you the ability to enter as much or as little information you have regarding the clients’ health conditions, family history, or driving violations. The system will then pull the data directly from the many carrier underwriting guides to give you the most accurate assessment of the client’s risk and health class.

If contracted, visit the Asset Portal and click on the Life Department link to run a Term Quote

Underwriting Success Story:   There was a client who was a little short for their weight. The agent was able to use the term quoter to find the carrier with the most lenient build chart. What would have been Table Rated at one carrier was Preferred at another.

Idea #2: Know the carrier underwriting sweet spots

The Asset team is here to help you find solutions for specific client underwriting risks. Take a look below to find a few carrier sweet spots.

    • ADHD: Minnesota Life/Securian
      • Minnesota Life will consider for Preferred for diagnosed ADHD.
    • Anxiety/Depression: Banner
      • Banner will consider for Preferred if the client is on one prescription and is well controlled.
    • Cigar Smoker: Prudential
      • Prudential allows two or fewer cigars a month (with no nicotine showing in the urine) to consider for Preferred Best Non-Smoker class!
    • Family History of Cancer: American General
      • American General ignores family history if the parent was diagnosed over the age of 65. They will also ignore gender-specific cancer.
    • Marijuana Use: Brighthouse
      • A client can use recreational marijuana on a daily basis for a Non-Smoker Table rate. They also do not test for THC during the exam process.

Underwriting Success Story:   There was a client that enjoyed a drink or two each night. Due to the field underwriting completed by the agent, he was aware of this and was able to move the conversation from one IUL company that he knew did not have an “appetite” for alcohol use to another, thus enabling his client to receive the best possible offer.

Idea #3: Utilize our risk assessment process to get ahead of any underwriting issues

To avoid potential underwriting “land mines”, complete our generic health questionnaire for your client. The Asset New Business Team can help you determine if the client has any adverse risks that might affect the outcome of the underwriting.

If so, we will use that information to obtain a tentative offer* from a carrier or carriers based on the supplied information.

Click here to download the questionnaire.

For any questions or concerns on a new or existing case, contact the Asset Marketing team at (866) 546-5267, option 2.

* Tentative offers received from the carriers are not binding and are subject to a formal application and full underwriting requirements. When submitting the application for the client please note that a quick quote was completed, so the tentative offer can be sent along with the application.

“DECLINED” May Not Mean “UNINSURABLE”

Jeff Stemler, CLU, ChFC, CFP – Sr. VP, Advanced Planning (Asset Marketing Systems)

Your client needs Long-Term Care insurance and you immediately think of a couple of LTC products that are asset based, such as One America’s Asset Care.  Asset based products like these are rate guaranteed at the time of issue with no increasing premiums.  While the client is looking primarily for long-term care benefits, since these products are actually life insurance products you get both a death benefit and/or long-term care coverage.

You’re very excited and you take the application.  You send everything off to the carrier and wait for the policy to be issued. In a few days you get an e-mail from the carrier saying that the case is “DECLINED.”  In a panic you call the Asset Life Team – “HELP!  Is there anything that can be done?”

The answer is “possibly” and you wonder how that can be if the insurance company has declined the case.  By definition they are saying your client is “uninsurable.”  Since the original product applied for was life insurance based, it was underwritten for both “mortality” (the likelihood of dying) AND “morbidity” (the likelihood of needing long-term care).

There is an alternative.  Annuity- based LTC insurance. These products are only underwritten for “morbidity”, and even though someone is “Declined” for life based LTC, they may still be able to qualify for Annuity based products.  However as noted, Annuity LTC products are still underwritten for “morbidity” and if the client has any conditions that would indicate the likelihood of needing extended care, they may not qualify.

So if your client needs options for long-term care coverage, Asset offers a wide range of products from true long-term care and long-term care riders, to single premium life insurance with living benefits, to annuities with income-doublers for home health care.

Talk to our product team today to discuss options to get your clients the extended care coverage they need.  (888) 303-8755

8 Things to Know About the SECURE Act of 2019

Sam Payne, RICP®, CLTC – VP Business Consultant
(Asset Marketing Systems)

The “Setting Every Community up for Retirement Enhancement” Act (SECURE Act) passed in the House last week with a 417-3 vote. This legislation is expected to make it through the Senate during this term, and in doing so, it will be the first major retirement legislation passed since the Pension Protection Act in 2006.

The Senate is working on their version of retirement legislation, it’s called the Retirement Enhancement Securities Act (RSA). As often happens, some of the provisions of the RSA may find their way into the SECURE Act. For this article, I stick to what we know about the SECURE Act, but keep in mind; it has not passed the Senate…

So what are some of the components of the SECURE Act? Out of the 29 or so new provisions, here are 8 things I think advisors should know:

1. Increase Small Employer Access to Retirement Plans – Part of the legislation will attempt to expand small employers capability to offer some form of retirement savings to employees. One way the act proposes to accomplish this is by expanding the ability to run multi-employer plans and streamline the process overall. This would essentially allow small employers to band together to offer reduced overall cost to the employer, and purportedly a reduction in the fiduciary liability.

2. Increase Annuity Options Inside Retirement Accounts – the act proposes to update the safe harbor provision for plan sponsors to select annuity providers to offer in-plan annuities for use within the 401K. The new rules would essentially ease liability concerns, perhaps opening the path for more annuities to be offered in the plan.

3. Increase RMD Ages – the plan proposes to increase the RMD start age from the current 70 ½ to 72.

4. Remove Age Limitation for contributing to an IRA – if RMD ages are going up, it only makes sense to remove the contribution age limits. Individuals are living longer, and as a consequence working longer. Having the ability to continue to contribute to an IRA as long as they work just makes sense.

5. Tax Credit for Automatic Enrollment – this provision would introduce a tax credit for small employers to encourage automatic enrollment into their plan. It’s a $500 credit, and the intention is to offset the costs of operating the plan at the start.

6. Penalty-Free Distributions for the Birth of a Child or Adoption – this provision will provide an exemption from the 10% penalty tax 72(t) for early withdrawal. It would allow an aggregate amount of $5,000 to be distributed from the plan within one year of birth or adoption.

7. Lifetime Income Disclosure for Defined Contribution Plans – the bill will require defined contribution plans to deliver a disclosure at least once every 12 months to illustrate how much income the account balance would generate. As you can imagine, the methodology for determining or calculating that income is still in the works.

8. Removal of “Stretch” IRA Provisions – here is where I see some significant changes to inherited plans. This provision would require most beneficiaries to distribute the account value over ten years.

So these are 8 quick things to know about the SECURE Act, but the real question in my mind is, will this really help Americans save more? I don’t think it will have a huge impact. I believe our continued message needs to be that each individual has the burden of saving for their financial future placed squarely on their shoulders. They should recognize that, and act accordingly.

Using financial tools and concepts with the advice and direction of a financial professional may help Americans better achieve the retirement of their dreams, so be their guide.

Sam Payne

858.207.2127
VP Business Consultant
SPayne@AssetMarketingSystems.com

Rates Have Dropped…
Now What?

Kurt Metcalfe – Sr. Annuity Sales Consultant
(Asset Marketing Systems)

The 10-year treasury has gone from 3.2% in November 2018 to the current 2.1% (as of 6/4/19). Of course, this is not the only measurement used by carriers in determining interest rates, but it’s a good guide. It’s clear to see how a 33% decrease can lead to lower caps and higher spreads. So how do we handle this? My simple response… “This changes nothing.”

It’s important to remember what we’re trying to accomplish for your annuity clients. Whether your client is looking for income, growth, or death benefit; the collective key to an FIA sale is safety. Consistent, sustainable income is best created using fixed annuities as their living benefits are stronger than VA counterparts. Rate decreases have left most income riders unaffected and therefore has not changed this sale. You can sit across from a client and tell them exactly how much income they will receive in retirement AND they will never outlive it.

In the past two weeks, I have heard a repeated question that has surprised me, “do we have anything out there that is still good for growth?” My response is always very simple, “Why wouldn’t we?” Sometimes we get stuck in this trap remembering how interest rates were 20-30% higher looking back six months ago. Is it true that those past clients are in a better spot than current/prospective buyers are today? Yes, probably. How does that help your current client? You are working as their advisor at this moment, not the past. We have no idea when interest rates will turn back around and increase. Your client can’t afford to sit on the sidelines and wait. S&P 500 is down 7% in the last month, is that better? If we stick to the basics and fulfill client needs with our best current tools, we are doing the best job. FIAs are not designed to outpace the equities market. I point to Roger Ibbotson’s whitepaper talking about how uncapped FIAs are your bond alternative. With this portion of your client’s money, are they ok with 3.5% – 5.5% per year, net of fees? People that tell them otherwise are promising something that will be difficult to deliver. If your client wants more, they will have to take more risk.

FIAs will not lose a dime of their money. FIAs can create an income stream that clients will not outlive. Those two facts remain the same, regardless of the interest rate environment.

And don’t forget to review our latest top picks and annuity recommendations. Click here to download the flyer.

Five Important Annuity Processing Tips

Mia Dempsey – New Business Department Manager
(Asset Marketing Systems)

We understand that having to go back to your client multiple times for new or corrected paperwork is time consuming and frustrating. Let us help you get it right the first time. Review these tips below for best practices when submitting your Annuity cases:

  • 1. Verify Your Carrier Contract Status
    • Make sure your Continuing Education (CE) credits are current!
      • Licensed agents need 24 hours of CE credits every two years. Some of those credits include AML and Annuity training. You can look up your CE credits via the Department of Insurance for your state.
    • Make sure your Carrier Appointment is current!
      • Call Asset Marketing Systems to confirm you are contracted and active with the carrier. If you have not written business with that carrier in the last 12 months, you may have been terminated.
    • Make sure your Product Training is complete!
      • Many carriers require specific product training. In some cases, each product line has its own training. Check your product training status with the AMS licensing department.
    • Do not take the application until you are sure all items above are in place.
      • Taking an application with one or more of these items missing most likely will require you to get updated paperwork signed.
  • 2. Keep up-to-date on Product Information & Rates Changes
  • 3. FireLight Tips – (E-Application)
    • Jurisdiction Selection
      • Incorrect state selection will require you to start over with a new case.
    • Optional Redtail Data Upload
      • If you are a Redtail CRM user, this is an optional selection for you. Via FireLight you can select the client information in your Redtail CRM to pre-populate portions of the application.
      • If you do not have the Redtail CRM or would rather manually populate the information, select the chevrons to the right to skip this page.
    • Where to View Missing Items
      • Click the chevrons at the top left of the page, under the Data Entry counter, and open the pages available. The red highlighted pages are those missing information.
      • If you still can’t find what’s missing, click the red “comment” icon on the top right of the page and missing information will be highlighted.
  • 4. Where to Send Your Annuity Applications
    • AMS case manages certain annuity carrier applications
      • Most of the carriers shown below require Asset to case manage the applications. Please make sure to send these applications to Asset (send copies to Asset if you submit the originals direct to the carrier at NewBusiness@assetismarketing.com)
        • 1. Ameritas – FlexMark Select (Optional)
        • 2. Americo – ClassicMark & LibertyMark (Optional)
        • 3. Athene – BCA
        • 4. Delaware Life – Retirement Chapters (Optional)
        • 5. Nationwide – New Heights
        • 6. North American – Prime Path
        • 7. Transamerica – Secure Retirement Index II
      • The remainder of our annuity carriers work directly with the agent’s office to obtain outstanding requirements on cases. These applications should be sent directly to the carrier. For these direct submit carriers, duplicated case management efforts on the part of Asset Case Managers who aren’t privy to info sent directly by the agent or his staff can cause confusion.
  • 5. Funding the Case
    • Transferring Money
      • Call the transferring company to confirm if a specific transfer form is required.
      • Annuity transfers require a current statement from the existing policy to be submitted with the application.
      • Since most carriers will not accept e-Signed Transfer of Asset (TOA) forms, it’s advisable to get a TOA physically signed by the client to be safe.
    • Sending a Physical Check
      • Send the check with the original application packet, OR
      • Wait for a policy number from the carrier and reference that number on the memo section of the check. This will allow the carrier to match it to the correct policy.

If you are not contracted with Asset, contact us to
learn more at 866-546-5267.